In a recent move to enhance transparency and streamline the process of related party transactions (RPTs), the Securities and Exchange Board of India (SEBI) issued a circular on March 21, 2025, extending the deadline for listed entities to adhere to the Industry Standards for related party transactions. The circular, titled “Industry Standards on Minimum Information to be Provided for Review of the Audit Committee and Shareholders for Approval of a Related Party Transaction,” aims to simplify the process of review and approval of RPTs, ensuring greater compliance and accountability.
Key Details of the Circular
The SEBI circular was initially announced on February 14, 2025, with an effective date of April 1, 2025. However, following feedback from stakeholders, including industry bodies such as ASSOCHAM, FICCI, and CII, SEBI has extended the implementation deadline to July 1, 2025. This extension gives listed entities additional time to comply with the new requirements.
The purpose of the circular is to ensure that listed companies follow standardized procedures when reviewing and approving related party transactions, which are often a source of concern due to their potential to cause conflicts of interest or affect shareholder value. The circular mandates that companies provide adequate and clear information to their audit committees and shareholders, helping them make informed decisions about such transactions.
Stakeholder Feedback and Adjustments
One of the key points highlighted in the circular is the formation of the Industry Standards Forum (ISF), a collaborative group that includes representatives from ASSOCHAM, CII, and FICCI. This forum played a crucial role in drafting the initial standards. Based on the feedback received from various stakeholders, the forum has agreed to simplify the guidelines, ensuring that they are practical and easier to implement for listed entities. The goal is to balance the need for transparency with the operational realities of companies, ensuring that they are not burdened with overly complex requirements.
The SEBI circular acknowledges that related party transactions are critical for the functioning of businesses but stresses that these transactions must be handled with care. The Industry Standards, which are set to be released by the ISF, will provide a clear framework for ensuring that RPTs are disclosed and approved in a manner that protects the interests of minority shareholders and ensures corporate governance standards are upheld.
What Does This Mean for Listed Entities?
For listed companies, the extension of the deadline provides an opportunity to prepare for the implementation of these standards. While the revised timeline offers more time to meet the new requirements, companies should begin reviewing their processes now to ensure they are fully compliant by July 1, 2025. This includes revisiting the manner in which they disclose related party transactions and ensuring that both the audit committee and shareholders are adequately informed.
The new guidelines require listed entities to provide comprehensive information related to RPTs, including details about the nature of the transaction, the parties involved, and the financial terms. This will enable the audit committee and shareholders to assess whether the transaction is in the best interest of the company and its shareholders.
Conclusion
SEBI’s decision to extend the deadline for the implementation of the Industry Standards on related party transactions reflects the regulator’s commitment to promoting better governance and transparency in corporate India. Listed entities must take this opportunity to review their processes and ensure they comply with the new requirements by the revised deadline of July 1, 2025. The updated guidelines will not only help in better monitoring of related party transactions but also enhance the confidence of investors and stakeholders in the corporate governance practices of listed companies.
